Excluding the impact of i) foreign exchange (FX) gain (RM18.1m), ii) losses from minority interest in 70%-owned Mi Equipment Korea (RM2.6m) and withholding tax of RM3.6m in relation to the dividend received from its Taiwan subsidiary, Mi Technovation posted core earnings of RM30.1m in the 9MFY23, down 5.3% YoY. The results made up only 63% and 53% of our and consensus full-year forecasts, respectively. On a positive note, the 3Q core results improved by 69% QoQ, a second consecutive quarterly growth. Despite the weaker-than-expected results, we keep our estimates unchanged as we expect to see a strong pick-up in the final quarter on the back of stronger contribution from both SEBU and SSBU. Maintain Outperform with an unchanged TP of RM2.57 based on 30x FY24 EPS. No dividend was declared for the quarter.

• 3QFY23 revenue grew 10% YoY. During the quarter, the increase in topline was mainly led by stronger sales from Semiconductor Equipment Business (SEBU), which was partially offset by weaker Semiconductor Material Business Unit (SMBU) sales. SEBU sales surged 46.5% YoY to RM51.1m, bolstered by higher number of machine deliveries to China, especially for electromagnetic interference process equipment. On the other hand, the weaker SMBU sales were mainly attributed to ongoing inventory adjustment in Mobility & Wearables segment in Taiwan.

• Core earnings jumped 33% YoY. Stripping out the i) favourable FX gain (RM2.8m), ii) losses from minority interest in 70%-owned Mi Equipment Korea (RM0.5m) and iii) withholding tax of RM3.6m in relation to the dividend received from its Taiwan subsidiary (a 12.5% tax on the gross dividend received), the Group saw its core earnings rise from RM11.3m to RM15m. Meanwhile, operating profit margin improved from 18.5% to 20.1% due to higher capacity utilization and favourable product mix in SEBU segment.

• Optimistic on both SEBU and SSBU outlook. Its Si Series final test handler for optical sensor and automotive chip testing, which is locally designed and manufactured in its Suzhou plant, has received strong demand. Management is confident that the Suzhou plant will turn around this year. Meanwhile, its Ai Series bonding equipment, namely, LAB, LCB and Laser Pin Bonder, which are under the operations at Gyeonggi Korea factory, are gaining traction, driven by the boom in the HPC, Memory and Artificial Intelligence segments. Meanwhile, it expects to see stronger demand for its SMBU unit with new product launches from key customers in the area of Mobility & Wearables, Automotive and AI. Its Ningbo plant is currently undergoing a large-scale production qualification process.

• SSBU kick starts. To ride on the EV and renewable energy momentum, the Semiconductor Solution Business Unit (SSBU) has officially launched its investment in Hangzhou for a new R&D center and manufacturing facility for power modules and devices.

Source: PublicInvest Research - 10 Nov 2023